Gavin Corporation and Keady Corporation, two corporations of roughly the same size, are both involved in the manufacture of canoes and sea kayaks. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the following information.

Instructions

(a) For each company, calculate the asset turnover ratio.

(b) Based on your calculations in part (a), comment on the relative effectiveness of the two companies in using their assets to generate sales and produce net income.

Transcribed Image Text:

Net income Sales Average total assets. Gavin Corp. $ 400,000 1,300,000 2,000,000 Average plant assets 1,500,000 Keady Corp. $ 420,000 1,140,000 1,500,000 800,000